Originally published in the Domini Funds’ Semi-Annual Report, January 31, 2008.

 

At the core of socially responsible investing lies a commitment to universal human dignity and the idea that profits should not come at the cost of anyone’s fundamental rights.

 

As the world economy becomes ever more globalized, this simple ideal has become more difficult to attain. While some companies have been directly implicated in severe abuses, more often corporations are confronted with the human rights challenges that come with doing business — sourcing raw materials, contracting with local manufacturers, seeking to offer products and services — in countries where abuses are common or even endemic.

 

Human rights is a complex and difficult subject for investors. It touches many different aspects of a company’s activities, including relationships with suppliers, employees, communities, customers, and governments. Social investors have been playing a critical role by alerting corporations to their human rights obligations, encouraging respect for international norms, and building the demand for consistent, reliable data so that corporate behavior can be more accurately assessed, and abuses brought to light and addressed. We look at the codes of conduct companies have adopted and the countries where they operate to assess the risk of human rights abuses. Conversations with company management and human rights organizations are also often helpful in understanding the role a company is playing. Comparable, reliable data, however, is generally unavailable.

 

In our discussion below, we focus mainly on companies held by the Domini Funds as of January 31, 2008. Some of the companies noted here are leaders in their industries. Others are just beginning to grapple with these difficult issues. Just as there are few perfect people, there are few perfect companies. We expect companies to responsibly address the real challenges they face, and we expect them to do their part to uphold universal human dignity wherever they do business. In this brief report we are able to touch on only a few areas of human rights. There are many other stories to tell, and we look forward to telling them in future reports. 

 

Though protecting and promoting human rights is often considered purely the role of government, we believe that corporations, investors, and consumers also bear responsibility. Human rights is everyone’s business.  Through this report, we hope to convey some of the work that corporations in your portfolio are doing, and the role that Domini is playing on your behalf to protect and promote universal human dignity.

 

Domini’s Response

 

Domini’s Global Investment Standards address the relationship of companies to the communities — global, national, and local — in which they operate. These standards encompass various aspects of human rights, including freedom of speech; protection of minority and indigenous peoples and their cultures; rights of workers to a safe, healthy workplace and fair compensation; and endorsement of international standards in areas like labor, health, product quality, and children’s rights.

 

Guided by these standards, we seek to promote universal human dignity through our research, shareholder activism, and commitment to community development.

 

Domini’s team of in-house research analysts evaluates companies on a range of human rights issues. Our goal is to identify companies that are responsibly addressing the key sustainability challenges of their industry. By including human rights considerations in our process, we are helping to raise expectations for corporate behavior among investors, the public, and the corporations we are evaluating.

 

This issue must also be considered in the context of a larger question: Just what are a corporation’s obligations regarding human rights in the countries and communities where it does business? And how can companies be held accountable for consistently and constructively exercising that responsibility?

 

Some companies have volunteered to take on these difficult questions and to work together to provide guidance to the corporate community. The Business Leaders Initiative on Human Rights has produced A Guide for Integrating Human Rights into Business Management, produced in cooperation with the UN Global Compact, a framework for businesses that wish to align themselves with ten principles regarding human rights, labor, the environment, and anticorruption. Of the 13 corporate members of the Business Leaders Initiative, six — Barclays, Coca-Cola, Gap Inc., Hewlett-Packard, Novartis, and StatoilHydro — were held in the portfolios of the Domini Funds as of January 31, 2008. The composition of each Fund's portfolio is subject to change. (View the most current list of the Domini Social Equity Fund and Domini International Social Equity Fund's holdings.)

 

The United Nations is also actively struggling with these questions. In 2007, Domini participated in a session convened by the UN High Commissioner on Human Rights, focusing on human rights and the financial sector, and a later brainstorming session to help plan the work of the special representative appointed by the UN Secretary General to help clarify standards of corporate responsibility regarding human rights. Domini continues to provide our input on this important process.

 

For many years, Domini has worked with a range of concerned investors and human rights organizations in the wider effort to clarify — and inculcate — human rights standards for corporate behavior. One of the most effective of these has been the Interfaith Center on Corporate Responsibility (ICCR), with which we have partnered on many shareholder campaigns for more than ten years. For the past two years, we have helped lead ICCR’s efforts to address working conditions in corporate supply chains.

 

Here are more examples of ways that your investment in the Domini Funds is making a difference for human rights:

 

Fighting Genocide in Sudan

 

With the steady increase in economic globalization, global banks and other major financial institutions provide the credit, financing, and liquidity that make it possible for companies and governments to do business around the world. As a result, those institutions have the potential to be an important influence on human rights.

 

Five years into a campaign of genocide by government-backed militias in the Sudanese province of Darfur, atrocities continue to take place on a massive scale. Working with Amnesty International, the Genocide Intervention Network, and other concerned investors, Domini met in recent months with large U.S. banks including Citigroup and JPMorgan Chase. We are encouraging them to use their influence with the companies they invest in — as well as the investors, companies, and governments they serve — to help end the ongoing genocide in Darfur.

 

In our Funds, Domini seeks to avoid investing in companies whose activities provide direct benefits to the Sudanese government, or that are otherwise complicit in human rights abuses in Sudan. Domini shares information about corporate activities in Sudan that we have acquired through our independent research with other investors and organizations working against the Darfur genocide.

 

Encouraging Internet Freedom

 

The Internet and telecommunications technologies are powerful tools for facilitating free speech and disseminating information, organizing political activity, promoting democracy, and exposing human rights violations. Protecting them from pressure by repressive governments is an important challenge. Domini is working as part of a multi-stakeholder group — including France Telecom, Google, Microsoft, TeliaSonera, Vodafone, and Yahoo, and a range of human rights groups and academics — to develop principles to protect freedom of expression and privacy on the Internet and other communication technologies. Recently, Domini filed a shareholder resolution calling on Cisco Systems, which has not joined this group, to report on its involvement with repressive regimes that seek to censor Internet content or restrict citizens’ access to the Internet. The resolution achieved a significant 36% vote of support.

 

Focus on: Improving Global Working Conditions

 

Over the past few decades, much of U.S manufacturing has shifted to the developing world, where labor costs are lower. In making this transition, companies have increasingly outsourced production to separately owned, locally based contract manufacturers. These facilities vary tremendously, but some have been marked by harsh working conditions, low pay, and the exploitation of children and even slave laborers. The risks to both workers and companies are amplified by the fact that many companies cannot identify the full breadth and scope of their supply chain, which may reach all the way from a modern production facility in China to a cotton field in Central Asia.

 

Ensuring decent working conditions in corporate supply chains is an unusually complex problem, and progress has been slow. Companies in the clothing industry were among the first to face public controversy and to take action, followed by toy companies and electronics companies. Domini and other concerned investors have encouraged companies to publish the data on their supply chains that can help to evaluate their performance. In addition to providing public accountability, that data has enabled companies to better understand the challenges they face, and to work to solve problems that previously remained hidden.

 

By working with industry leaders, we hope to create momentum — and pressure — for their competitors to make similar improvements. One sign of progress is the increasing number of companies that have developed codes of conduct for their suppliers, and that monitor factories with the use of their own or third-party auditors. The Electronic Industry Citizenship Coalition, created in 2004, is an example of an industrywide effort to set basic labor and environmental standards for suppliers in an industry with an unusually complex supply chain. The 32 corporate members of the EICC Group, including Apple, Dell, Hewlett-Packard, and IBM, have agreed to work together to improve conditions in the global electronic supply chain. Domini has provided input over the past few years through periodic stakeholder consultations as the group worked to develop audit protocols, questionnaires, and other monitoring tools.

 

Promoting International Standards

 

Domini encourages companies to adopt comprehensive labor standards for their operations and their suppliers that incorporate the core conventions of the International Labor Organization (ILO). These conventions address the right to organize and bargain collectively, child labor, forced labor, discrimination, and equal pay for equal work. Although the ILO’s conventions apply to governments, we have worked with a number of companies to incorporate the ILO’s “core conventions” into their formal policies. In 2005, for example, we convinced Apple to adopt its first code of conduct, setting labor and environmental standards for its supply chain.

 

According to the ILO, the right to freely associate, including the right to form or join a union of one’s choice, and to bargain collectively for the terms of one’s employment, are fundamental labor rights. Human Rights Watch has reported, however, that U.S. labor law falls short in protecting these fundamental rights. In the fall of 2007, Domini filed a shareholder resolution urging Cummins to adhere to international standards in its relationships with labor unions. We are currently in dialogue with Cummins management to work through these complicated issues. Domini also co-filed its first shareholder resolution in Europe last year, addressing allegations of anti-union activity in the U.S. by a subsidiary of the British transportation company FirstGroup.

 

Domini has been in dialogue with Disney for more than ten years. In 1996, the company created its first code of conduct and established its International Labor Standards Group. The Code sets forth standards for Disney suppliers on working conditions, compensation and benefits, working hours, health and safety, collective bargaining, and other issues. Disney began monitoring factories directly in 1997, and has reportedly carried out tens of thousands of factory audits in more than 50 countries. As an outgrowth of that work, Domini has been working with McDonald’s and Disney on a multi-year project seeking to sustain factory compliance with acceptable labor standards.

 

Encouraging Transparency

 

For years, two of America’s biggest and most successful clothing retailers, Nike and Gap, were the target of criticism by activists on sweatshop labor issues. In recent years, in addition to extensive efforts to monitor their supply chains and address poor working conditions, both companies responded by taking steps to increase transparency. Gap’s first Social Responsibility Report, released in 2004 was developed in cooperation with Domini and a small group of social investors, in response to a shareholder resolution we filed. The report marked the first time that a clothing retailer had publicly rated the way the factories in its global supply chain treated their workers. Gap’s third and most recent report, for 2005-2006, noted that the company conducted 4,316 inspections in 2,053 garment factories around the world during 2006 — more than 99% of its garment factory base. Domini has provided feedback to Gap during the drafting of each of its reports.

 

In its 2004 Corporate Responsibility report, Nike announced that it was publishing on its website the names and addresses of each of its factories. In addition, Nike and Hewlett-Packard, in their reports that year, reported on noncompliant factories using charts similar to those in Gap’s first report — bringing us one step closer to standardized reporting in this area. Unfortunately, most companies have resisted a commitment to greater accountability through annual public reporting, and this type of reporting remains voluntary. Nevertheless, the expectations of corporations have changed dramatically.

 

Correcting Abuses

 

Gap faced renewed controversy in 2007, when the British newspaper The Observer reported that children as young as ten years old were doing hand embroidery for up to 16 hours a day in a workshop in Delhi.

 

These revelations showed the persistence of labor rights violations, including child labor, in certain emerging markets, and Gap’s response illustrates that leading companies now recognize the importance of addressing abuses quickly and comprehensively. The company, which said it learned of the abuses on October 22, announced on November 14 that it had “launched a thorough investigation, cancelled the product order in question and made sure the garment would never be sold.” By November 2, the company had convened all of its Indian suppliers to stress its “zero tolerance” policy on child labor. The exploited children were placed under the care of a nonprofit group affiliated with Global March Against Child Labour, an organization founded and led by one of the world’s leading defenders of children’s rights. Gap is partnering with the Global March to develop an independent oversight and monitoring program to address hand embroidery and beadwork for Gap products — work that is generally not done in factories, but in the “informal sector” of India’s economy. Gap also committed itself to ensure the children receive “access to schooling, financial support until they reach the legal working age, and job opportunities thereafter.”  

 

All of us share a responsibility to end child labor, as well as other abuses of human rights. We hope that this recent controversy will underline the importance of shedding light on the practices of the many companies that are less well known, and less transparent.

 

 

The composition of each Fund's portfolio is subject to change. View the most current list of the Domini Social Equity Fund and Domini International Social Equity Fund's holdings.

 

The preceding profiles should not be deemed an offer to sell or a solicitation of an offer to buy the stock of any of the companies noted, or a recommendation concerning the merits of any of these companies as an investment.